Retirement Savings Sacrificed for College Costs

Forty-nine
percent of parents polled for T. Rowe Price’s Family Financial Tradeoffs Survey
agree with the statement “I’d be willing to delay my retirement to pay for my
kids’ college education.”

In
addition, 51% agree with the statement “I’d be willing to get a second or part-time
job to pay for my kids’ college education,” and 53% of parents agree with the
statement “I would rather dip into my retirement savings to pay for my kids’
college education than have them take on student loans.”

But,
it’s not only their children’s education for which they are sacrificing
retirement; 44% of the parents who used student loans to pay their own
college costs said these repayments have impacted their ability to save for
retirement. The survey finds most respondents (58%) have dipped into retirement
savings to pay for something else. The top item was debt (20%), followed by day-to-day
living expenses (13%), children’s education (12%) and covering expenses while
unemployed (12%).

Twenty-seven
percent indicated they have cashed out a retirement account from a previous
job. The most common reason given was that it was needed for day-to-day expenses
(37%), followed by “I was young and didn’t know any better” (29%). Twenty-one
percent put it toward student loans and college expenses.

More
than half (52%) of survey respondents are willing to take on $25,000 or more in
debt to pay for their children’s college education, with 23% willing to take on
more than $75,000 and 9% saying they would borrow “whatever it takes.” Forty-seven
percent are willing to let their kids take on monthly student loan payments of
$300 or more, and 32% are willing to let their kids take on $500 or more, with
77% saying they are at least somewhat likely to help their kids pay off student loans.

T. Rowe Price found 45%
of parents who are saving for their children’s college indicated that they are
using a regular savings account to do so. Thirty-one percent said that they are
using a 529 college savings plan account, but nearly as many (30%) said they
are using 401(k)s to save for their children’s college. When asked why they weren’t using a 529 account
to save for college, 28% said they do not know what it is.

Even
though contributions to a 529 account can be withdrawn anytime for any reason,
25% cited lack of access as a reason for not saving in a 529 account.
Additionally, 15% mistakenly thought that saving in a 529 account meant that
they wouldn’t be able to get financial aid, and they cited this as a reason
they were not using one.

Sixty-eight
percent of Millennials (respondents between ages 21 and 34) report being
overwhelmed by financial pressures, compared with 58% of Gen Xers (respondents
between ages 35 and 50). Of the Millennials who used loans to pay for college,
70% of them think they took out too much debt to pay for college, compared with
55% of Gen Xers.

Parents
of Millennials were twice as likely to tap retirement savings to cover college.
Of the Millennials whose parents helped pay for their college, 18% indicated
that their parents had taken money from a retirement savings account to cover
their college costs. However, only 9% of Gen Xers whose parents helped cover
college costs said the same.

Millennials
are more inclined to follow their parents’ example: 62% of this generation would
rather dip into retirement savings to pay for college than have their kids take
on student loans, compared with 44% of Gen Xers. Additionally, 34% of Millennials
indicated they are using a 401(k) plan to save for college, compared with 25%
of Gen Xers.

Among
all survey respondents, 49% agree with the statement “I don’t think I will ever
retire.” Sixty-four
percent of Millennials believe they are more likely to win the lottery than
receive any money from Social Security, compared with 49% of Gen Xers.

Nearly
half (49%) of Millennials report losing sleep worrying about how they will pay
for retirement, compared with 37% of Gen Xers. Nearly two-thirds (65%) of Millennials
have taken money from retirement savings to pay for something else, versus 51%
of Gen Xers.

T. Rowe Price’s
Family Financial Tradeoffs Survey was fielded between December 18 and December
29, with a sample size of 2,000 parents of children ages 15 and younger,
including a 50/50 quota for gender and age groups (i.e., Millennials and Gen
Xers). Full results may be downloaded from here.